Minnesota school financing overhaul on the table

A group charged with overhauling Minnesota's education finance system has come up with what members say is a simpler and more balanced approach to funding schools.

But to make it work, it would take time and money.

Estimates show it would cost the state an extra $634 million a year -- a 7 percent increase in education funding for preschools through high school. State education finance officials say it can be phased in over a four- to six-year period.

Democrats control the Legislature and governor's office for the first time in more than two decades. But they're taking over when the state still owes schools about $2.4 billion in delayed aid payments from previous budget shortfalls and faces another deficit of around $1.1 billion over the next two years.

"It all will depend on what kind of economic situation we're in as a state," Education Commissioner Brenda Cassellius said.

"But Governor Dayton has always made education a priority. And this is a good step in the right direction to creating a more fair and equitable school funding system."

Supporters of overhauling Minnesota's school funding system have said for years it's broken, not taking into account skyrocketing costs in such areas as special education, transportation and testing in particular.

And one of the biggest problems is the state's share of funding schools hasn't kept pace with inflation for the past eight years, shifting more of the burden onto local property taxpayers.

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Property taxes for schools have gone up from $984 million in 2002 to $2.3 billion this year. State aid has increased from $6.1 billion to $7.3 billion during that same time period.

The group of teachers, superintendents, school finance officers and lobbyists has been working on the recommendations since June. Under the proposal approved Tuesday, Nov. 27, school districts would on average receive $11,673 per pupil in total from the state, up from $10,912 under current law.

That would include adjusting aid to reflect the rate of inflation, which hasn't been included since 2003. The general per-pupil aid has increased by 13.5 percent since then, while the Consumer Price Index has gone up 26.4 percent.

Here's a look at some of the key proposals:

-- Invest in early learning by providing free, all-day kindergarten for low-income children. That would cost about $63 million. Studies show focusing resources in the early years is one of the most effective ways of closing the achievement gap between poor students and their peers.

-- Change the way schools are given money to help students who need extra help. Currently, districts are rewarded for serving high-need students after school or in the summer; schools that offer intensive services during the regular school calendar don't get the money.

-- Refocus integration funding, spreading out the $101 million so more money would go toward increasingly diverse suburban districts.

-- Reward schools for student growth. That would include continuing literacy aid, which rewards schools for getting all third-graders reading at grade level, and starting a noncompetitive grant program for schools that have significant gains in test scores.

-- Reform special education funding, which includes increasing state aid by about $195 million per year to reduce costs to local school districts.

Reworking Minnesota's education funding system will be anything but easy. The most obvious hurdle is money.

Democrats have proposed tax increases in the past, particularly Gov. Mark Dayton's 2011 proposal to raise income taxes for the wealthiest 2 percent of Minnesotans. That plan would bring in $1.8 billion -- still not enough money to fill the state's anticipated $1.1 billion budget shortfall and pay back the $2.4 billion borrowed from schools.

"This will require a very large tax increase to accomplish. But with the Democrats in charge, one would expect that to happen," said Rep. Pat Garofalo, R-Farmington, the outgoing chairman of the House Education Finance Committee.

Lawmakers have tried to change the funding system before. A decade ago, Gov. Jesse Ventura and lawmakers agreed to spend an additional $950 million in state funding to take over a large chunk of school property taxes. And that has pretty much unraveled.

Business leaders are also leery of how this new education funding plan will mesh with the Dayton administration's plan to overhaul Minnesota's tax system and what it will mean for businesses property taxes. Plus, the price tag is sizeable, said Amy Walstien, director of education and workforce development policy for the Minnesota Chamber of Commerce.

And with any major changes to such a large, complex funding system, there will be winners and losers.

While the plan increases state funding, local property taxes on average will remain the same. But in the effort to make money more equitable, property owners in some school districts will see decreases on their tax bill, while others will see increases, said Tom Melcher, the state education department's finance manager.

Those that will see tax increases tend to have higher-value homes and more commercial-industrial properties, he said. So Edina could see school local property taxes go up 8 percent and Westonka 31 percent, according to state estimates. Those that will see a decrease tend to have lower tax bases and more school-aged children living in the district like Anoka-Hennepin, which could see a 12 percent drop.

And school districts that don't have any voter-approved levies on the book could see local property taxes go up, but their state aid increase would be huge. North Branch, for example, could get an extra $1,012 per pupil. Property taxes could go up about 12 percent.

Some are concerned that once the proposals hit the Legislature, it could unravel if lawmakers start pulling pieces from it or start getting territorial because property taxpayers in their areas don't fare as well.

"The districts that are going to see the least benefits are going to see the biggest property tax increases," said Ric Dressen, superintendent of Edina Public Schools. "And that's going to be a challenge."

Jeff Drake, superintendent and high school principal in Battle Lake, said local property taxes could go up in his district.

"But to me, you can't look at it district by district. To me, the right thing to do is have a system that is equitable across the state of Minnesota," Drake said. "And I think that this plan is the next best step toward that."

"Under our current system, the suburbs pay. Under this plan, the suburbs pay more. It's a bad time to be a successful person living in the suburbs," Garofalo said.